Tech Sell-Off: 1 Stock-Split Stock to Buy On the Dip and Hold Forever

Tech Sell-Off: 1 Stock-Split Stock to Buy On the Dip and Hold Forever

Posted On June 10, 2022 1:24 pm

Amazon‘s stock split has officially taken effect, but there’s still time to grab shares in another trillion-dollar giant before it conducts one of its own. Alphabet (GOOG -1.98%)(GOOGL -2.01%), the parent company of Google, has officially scheduled July 15 as the day it shrinks its stock price using a 20-for-1 split.

On that date, the number of Alphabet shares in circulation will increase by 20 times, which in turn will bring down the price per share. If the split occurred today, for example, Alphabet’s current stock price of $2,342 would fall to just $117.10. It’s important to note, however, that stock splits don’t actually change the intrinsic value of the business — the move is purely cosmetic.

But it might encourage smaller investors to buy Alphabet stock since the price of a single share would be more affordable, and that could offer a lift to the company’s overall value. It’s no guarantee, but it would be a net positive since Alphabet’s stock price has declined almost 22% from its all-time high amid the bear market in the technology sector. 

Split or not, it’s a fantastic company

Alphabet has a market valuation of $1.5 trillion as of this writing, and its success is attributable to its diverse set of businesses. That’s why it’s important to set aside short-term factors like the incoming stock split and instead focus on the company’s core operations, because that’s what really matters.

Most people interact with Alphabet through Google, which owns about 92% of global search engine market share and is the driver of the company’s advertising revenue. But Google has expanded beyond that flagship asset and now also lends its name to a suite of products and services that includes email, digital documents, cloud computing, a smartphone, and even a doorbell camera.

But this powerhouse company isn’t driven by one brand alone. In 2006, Alphabet (when it was still just “Google”) purchased the online video platform YouTube for $1.65 billion, and to call it a success would be an understatement. Today, 2.6 billion people use the platform every month, and in the first quarter of 2022 alone, YouTube generated over $6.8 billion in advertising revenue, which is multiples higher than the original acquisition price almost 16 years ago.

But Google Cloud might be Alphabet’s most intriguing segment. The cloud, which helps companies migrate their operations online with hundreds of services from data storage to artificial intelligence tools, could be a $1.5 trillion opportunity annually by 2030, according to some estimates. And right now, Google Cloud is comfortably outgrowing the rest of Alphabet with a revenue jump of 43% in first-quarter 2022, compared to just 23% for the company overall.

Alphabet is a profit-generating machine

The pandemic created the perfect environment for companies that rely on screen time. A combination of lockdowns and work-from-home trends meant people were spending more of their days online, creating a boom for digital advertising. 

For that reason, Alphabet experienced its most profitable year ever in 2021. But the company is facing the risk of a slight drop in earnings per share this year as the pandemic effects continue to fade. Outside of the broader market turmoil, this is part of the reason Alphabet stock has fallen almost…

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